Cheaper loans on offer online

BORROWERS opting for online home loans are securing significantly lower interest rates, saving themselves thousands of dollars a year.

Smaller online lenders are offering some of the most competitive home loan deals, and borrowers are being urged to look beyond the big four banks for their finance.

Online-only lenders have rates as low as 3.39 per cent — the average variable rate offered by the big four is more than 1 percentage point higher.

But despite this the home loan market has remained extremely competitive with lenders itching for new business.

Analysis by financial comparison website Mozo found that on an average $300,000 30-year loan, borrowers making principal-and-interest repayments could save up to $2600 a year by switching to the cheapest online lender.

That was Reduce Home Loans’ deal of 3.39 per cent.

Over the life of the loan, this deal could save the borrower nearly $78,000.

By comparison, the average home loan variable rate of the big four was 4.64 per cent — a difference of 1.25 points.

But Aussie Home Loans chief executive James Symond warned that when choosing a lender, borrowers should not focus solely on the interest rate.

“Borrowers need to carefully consider the credentials of the lender in areas like track record, branch network, product range and services provided to them,’’ he said.

“Of course, online lenders can provide sharp rates, as they do not have to support a branch network, people, compliance and a range of other features that are essential in servicing a customer properly.”

Owner-occupiers paying both principal and interest can score interest rate deals below 4 per cent — for investors, many deals are slightly higher.

The board of the Reserve Bank of Australia is due to meet again tomorrow, when it is expected to keep the cash rate on hold at 1.5 per cent — where it has been since August 2016.

Mozo spokeswoman Kirsty Lamont said borrowers needed to look outside the big banks.

“Start looking online to find the best home loan value deal,’’ she said.

“Some people like the faceto-face interaction with a bricks-and-mortar bank.

“But increasingly, home loans can be managed entirely online,” she said.

Ms Lamont said many Australians did not engage with online lenders simply because they did not know enough about them.

But this failure could be costing them significant savings, she said.